A suit for a
state income tax refund is not triable by jury, a unanimous state Supreme Court
ruled yesterday.

The high court
overturned a ruling by the First District Court of Appeal’s Div. Five. That
panel said a jury could decide whether the estate of an Internet entrepreneur
may recover millions of dollars in taxes it claims was never owed.

The Franchise
Tax Board not only rejected the claim for more than $15 million, it claims the
estate of Thomas J. Gonzales II owes penalties for late payment. The First
District ruled that the claim for penalties was not triable by jury, and that
part of the ruling was left standing by the high court.

Gonzales was 35
when he died of cancer in December 2001. He and his father co-founded Commerce
One Inc., a pioneering business-solutions Internet company in the East Bay community
of Pleasanton.

The younger
Gonzales left an estate estimated in news reports at $90 million. The estate,
administered by his father, became embroiled in a dispute with the tax board
over whether certain losses for which deductions were taken on his 2000 return
arose from abusive tax shelters.

In 2004, the
estate agreed to participate in the California Voluntary Compliance Initiative,
under which it agreed to pay over $15 million in taxes it allegedly owed in
exchange for a waiver of penalties. But when the estate sued for a refund, the
state filed a cross-complaint for about $2.5 million in penalties.

In ruling that
the refund claim was triable by jury, the Court of Appeal said that such claims
are considered “legal,” rather than equitable, and thus are triable by jury
under the state Constitution. The court noted that at common law, taxpayers
were allowed to seek refunds by suing the tax collector, who lacked sovereign
immunity.

But Justice
Carol Corrigan, in her opinion for the high court, explained that the modern
statutory action for a refund “is fundamentally different in character from the
old private right of action against tax collectors.” Unlike at common law, she
noted, there is no requirement that the tax be paid under protest as a prerequisite
to a refund suit.